Big Banks Must Face U.S. Swaps Price-fixing Lawsuit

A
Bank of America sign is pictured in Encinitas,
CaliforniaThomson
Reuters

By Jonathan Stempel

NEW YORK (Reuters) - A Manhattan federal judge said on Thursday
that investors may pursue a lawsuit accusing 12 major banks of
violating antitrust law by fixing prices and restraining
competition in the roughly $21 trillion market for credit default
swaps.

While dismissing part of the case, U.S. District Judge Denise
Cote said investors may press claims that the defendants' Sherman
Act violations caused them to pay unfair prices on CDS trades
from the autumn of 2008 through the end of 2013, even as improved
liquidity should have driven costs down.

"The complaint provides a chronology of behavior that would
probably not result from chance, coincidence, independent
responses to common stimuli, or mere interdependence," Cote said.

Other defendants are the International Swaps and Derivatives
Association and Markit Ltd , which provides credit derivative
pricing services.

Credit default swaps are contracts that let investors buy
protection to hedge against the risk that corporate or sovereign
debt issuers will not meet their payment obligations.

The lawsuit seeks class-action status, and damages could reach
tens of billions of dollars.

"We are gratified with the decision," said Dan Brockett, a
partner at Quinn Emanuel Urquhart & Sullivan representing the
plaintiffs. "It will be a long, protracted battle."

All 12 banks and Markit declined to comment. ISDA spokeswoman
Lauren Dobbs said the trade group believes it acted properly, and
the remaining claims have no merit.

U.S. and European regulators have probed potential
anticompetitive activity in CDS. In July 2013, the European
Commission accused many of the defendants of colluding to block
new CDS exchanges from entering the market.

In the lawsuit, investors accused the banks of trying in late
2008 to quietly scuttle the launch of the Credit Market
Derivatives Exchange (CMDX), being developed in part by CME Group
Inc .

Investors claimed the banks did this by agreeing not to use new
CDS platforms, and arranging for ISDA and Markit not to provide
licenses to CMDX as they had contemplated.

Cote rejected the banks' argument that their actions "just as
plausibly" could have resulted from "independent business
decisions" in response to the global financial crisis.